In October 2026 the world faces simultaneous closure of Strait of Hormuz and Bab al-Mandab, blocking 39% of global trade. The collapse of Yemen’s 2022 ceasefire, a renewed Saudi-Houthi war, and a US-Iran war that began in February 2026 have turned the Red Sea into the Middle East’s last open chokepoint. Washington and Brussels have issued identical warnings that closure is not acceptable because it fuels inflation, breaks European cohesion on Ukraine, and benefits Russia.
Pakistan, bound by the new Mecca Defence Pact with Saudi Arabia and Turkey, has deployed defensive forces to Saudi territory while claiming it will not conduct offensive operations inside Yemen. That balancing act is fragile because Pakistan is in its 25th IMF programme, faces a $3 billion plus $5 billion rollover lifeline from Saudi Arabia, and suffers an energy governance crisis centred on Independent Power Producers, IPPs. Pakistan must use the current, legally valid force majeure on RLNG supplies to rein in IPP capacity payments that consume nearly 70% of electricity bills.
The New Maritime Crisis cropped up Even before the current war, Bab al-Mandab was a major route with 12% of world oil shipments transiting in 2023. Since late February, Iran’s Revolutionary Guard declared Hormuz closed to most international shipping, a closure Tehran reaffirmed, saying it stays shut until Washington accepts its terms. With that, Bab al-Mandab became something it has never been before, the Middle East’s last partially functioning maritime chokepoint.
The dual closure is unprecedented. Reports from Islamabad note both chokepoints are shut simultaneously, blocking 39% of global trade. The trigger is two wars merging. A disruption in Hormuz raises European gas prices, which increases domestic political pressure in Germany for engagement with Russia, which in turn affects European cohesion on Ukraine policy. For energy-importing states like Pakistan, the shock is immediate and brutal. Present Europe most of the Countries are in the grip violent protests on this account.
Yemen War 2026 is converted from Ceasefire to Offensive. The UN-brokered ceasefire of 2022 largely held until mid-2026. The history notes a ceasefire that had held since 2022 is under renewed strain following Saudi-led strikes and Houthi retaliatory attacks in 2026.
The break point was 13 July 2026, when a Mahan Air flight carrying IRGC commanders and weapons attempted to land at Sanaa Airport. Yemeni government forces and Saudi Arabia struck the runway to prevent landing. In retaliation, the Houthis declared the ceasefire over. On 20 July they announced a naval blockade on Saudi Arabia.
On 3 September 2026 the Houthis launched what was described as a massive offensive against the Saudi-backed Presidential Leadership Council, PLC, the UN-recognized government. The is official status is on 3 September 2026 – present, Status Ongoing, with Bab al-Mandab crisis listed.
Since then Houthis have captured Hanish Islands, Hays and Al Khawkhah districts in Al-Hudaydah and Mokha and Dhubab districts in Taiz, encircling Taiz city and claiming control over Yemen’s entire Red Sea coast. PLC named its counter-operation Operation Dawn of Yemen. Belligerents listed for the 2026 offensive include Pakistan on the PLC/Saudi side alongside Saudi Arabia, supported by Turkey, United States and others.
Washington and Brussels echoing Same Alarm Washington , Former Deputy National Security Adviser KT McFarland, often reported as Mike Farland, revealed on Fox News Tuesday April 7, 2026 that President Trump delivered a clear warning to Iran’s leaders, indicating serious repercussions if discussions do not succeed. The headline version quoted was: Trump Said to Them ‘In 12 Hours, If You Do Not Agree, We Will Blow Up the Whole Thing’.
Current policy as of 16 October is contradictory by design. US military has developed new strike plans that include potentially using the so-called mother of all bombs to target Iranian energy infrastructure and nuclear sites should President Trump give order. CNN added Trump instructed military to draw up additional airstrikes targeting multiple energy infrastructure. Present status born in Yemen is going on, US Iran war on low key but potential of full scale war.
At same time, President Trump ruled out new US strikes on Iran before pivotal midterm elections after oil prices jumped. Writing on Truth Social, Trump said the United States would not be attacking Iran at any time prior to Midterm Elections. On Thursday he said the US is having productive discussions with Iran and will not launch an attack before November, ruled out using nuclear weapons, and expressed little inclination towards deploying ground troops, even as fresh strike options are developed. Oil already reacted, WTI rose to a three-week high after Houthis attacked Saudi Aramco headquarters.
EU leaders met in Brussels 15-16 October 2026. The agenda was competitiveness, high energy prices and the bloc’s next long-term budget. Latvian PM said: The economy is weak. Why is it weak? Energy. Commission President von der Leyen said since outbreak of war in Iran and closure of Hormuz, imported fossil fuels have cost Europe €100 billion extra without a single molecule of additional energy, noting diesel prices doubled and gas jumped 140%. EU leaders blame Russia.
On Yemen, EU27 will strongly condemn Houthi attacks on civilian infrastructure in Saudi Arabia and on merchant ships, which threaten maritime security in the Red Sea and the Bab al-Mandeb Strait. High Representative Kaja Kallas said she wanted to increase fleet of operation EUNAVFOR Aspides to 10 ships and extended its mandate until 28 February 2027. The mission provides defensive escorts around Bab al-Mandab while monitoring Red Sea to Arabian Sea and Hormuz. Speaking after defence ministers meeting, Kallas described control of Bab al-Mandab by Sanaa forces as a threat to EU member states and the global economy.
Both capitals link Ukraine and Middle East through energy. EU ended summit without agreement on financing Ukraine, budget or energy cost responsibility because energy bill dominates.
Where Pakistan Stands , Foreign Office briefing 9 October 2026: Pakistan to defend Saudi territory, not attack Yemen, and Islamabad continues mediation efforts between US, and Iran.
Historically since 1982, the Pakistan armed forces have been present in Saudi Arabia in one capacity or another, sometimes under logistical arrangements and sometimes as part of training missions. Army spokesman added neutrality comes from honesty, calling Pakistan a very honest broker.
The shift has occurred , eleven years after parliament voted to keep country out of Saudi-led intervention in Yemen in 2015, Islamabad has agreed to rapidly deploy more forces to Saudi Arabia without a parliamentary vote, highlighting military’s grip on foreign policy. Defence pact Pakistan signed with Saudi Arabia and Turkey in August was invoked for first time as kingdom faces escalating attacks from Houthis.
Financial calculus dictate , Foreign Ministry clarified forces deployed to defend Saudi Arabia and will not enter Yemen to conduct offensive operations. Saudi Arabia has pledged an additional USD 3 billion alongside extension of existing USD 5 billion deposit, support critical for a country under persistent pressure on external finances. Coming to Saudi’s defence is nevertheless complex calculation for Pakistan, which has played key role mediating between Iran – its neighbour and backer of Houthis – and US.
Cost is credibility with Iran. Iranian lawmaker Ahmad Naderi said Pakistan’s entry alongside Saudi Arabia into war against people of Yemen shows Pakistan should no longer be considered mediator but a regional intervenor. Houthis have warned Turkey and Pakistan.
Internal Governance and the IPP Burden is the Core Vulnerability .The energy shock exposes poor governance. The government lurched from one fiscal crisis to the next, eyes fixed on IMF programme, ignoring energy transition country desperately needed. Then came March 2026. The US-Israeli war on Iran closed Strait of Hormuz, and consequences for Pakistan were immediate and brutal. Pakistan remains under IMF Extended Fund Facility and Resilience and Sustainability Facility. A staff-level agreement in early October 2026 cleared path for roughly USD 1.2 billion further disbursements. Finance Minister told AFP on 17 October country had so far withstood shock from skyrocketing energy prices but attacks on Gulf energy infrastructure were worrying for longer-term outlook.
Citizen survey 2026: Rising energy and fuel prices, growing national debt emerged as biggest concerns while public trust in state institutions remains relatively low. Root cause is IPP contracts. Pakistan’s energy insecurity is not rooted in lack of resources, it is product of poor governance, flawed policies, and decades of strategic miscalculations.
Capacity payments are made to cover fixed costs regardless of how much electricity actually generated, entire amount recovered from consumers through bills. More than Rs1.3 trillion reportedly paid to IPPs in capacity charges during current financial year. Government payments to IPPs amounted to about Rs2.94 trillion in first 11 months FY2025-26. Nearly 70% of money collected through electricity bills is transferred to IPPs, making these contractual payments biggest reason behind soaring tariffs. Capacity is a trap: capacity payments surging from Rs 3 per unit in 2016 to Rs 18 per unit in 2025, driven by currency depreciation and poor policy. Senate Standing Committee raised serious concerns over billions in capacity payments to non-operational IPPs, calling payments unnecessary burden.
Yet 2026 is first year of sustained correction. Circular debt had declined from Rs2.4 trillion to Rs1.6 trillion, marking first sustained reduction. Decrease included Rs193 billion from lower DISCO losses, Rs260 billion from renegotiated contracts with IPPs, and around Rs300 billion from improved macro conditions. Cabinet approved plan to renegotiate agreements with 14 IPPs. Government set to finalise deals with remaining IPPs by June 2026 to reduce circular debt. Reforms could help save Rs1.4 trillion through IPP renegotiation, with renegotiated contracts expected to save Rs3.5 trillion over lifetime.
Meanwhile people’s solar provided more resilient service during geopolitical disruption than several billion dollars of centralised RLNG capacity, with 19,000-plus MWs of people-financed solar built without state financing. In current chokepoint closure, Pakistan pays twice for expensive LNG that cannot arrive, and capacity charge for plants that cannot run.
Force Majeure and International Convention If IPPs Do Not Cooperate This is where international contract law matters. Under UNCITRAL and UNIDROIT, Force Majeure was integrated into global trade principles. PPA is sole memorandum regarding commercial arrangements including entitlement to force majeure relief, so general law matters little unless PPA incorporates it. Pakistani PPAs do, differentiating between political force majeure such as wars, frustrating government actions, embargoes and other force majeure such as natural disasters.
Where force majeure clauses are present in PPA, rating agencies look at whether provisions limit IPP liability. Current facts create textbook political quagmire. Qatar extends LNG force majeure notice to Pakistan as Hormuz remains closed. Edison will not receive LNG cargoes until December, latest extension under force majeure notification first issued in April following disruptions caused by US-Iran war. Clients in Asia, including Bangladesh and Pakistan, were also informed notices extended until November. Pakistan’s LNG supplies for power generation are currently unavailable under force majeure conditions, officials said during NEPRA public hearing. SNGPL informed four RLNG-based power plants in Punjab that force majeure declared by its supplier remained in effect because of ongoing conflict in Gulf. KE flagged likelihood of increased loadshedding due to ongoing force majeure situation affecting RLNG supplies.
International practice if IPPs refuse renegotiation: Hardship, not FM, for most IPPs: UNIDROIT 6.2.1-6.2.3 allows party to request renegotiation if performance becomes excessively onerous. This is appropriate for dollar-indexed coal and gas IPPs where alternative fuel exists. A global pandemic does not necessarily constitute force majeure within infrastructure and power projects; same logic applies to price spike. FM for RLNG IPPs only: Back-to-back FM with Qatar is defensible. If seller is rendered wholly or partly unable to perform due to FM, seller shall be excused from only that portion prevented. Operational status of LNG terminals does not invalidate PSO’s force majeure, but financial relief is minimal, estimated $15-20 million per month, far lower than single LNG cargo cost. Arbitration , Where the parties cannot agree, disputes proceed to international arbitration under ICC, LCIA, SIAC, or UNCITRAL rules, dominant mechanism for high-value energy contracts.
Unilateral blanket FM on all IPPs, as attempted in 2020 when government sought to instruct CPPA-G to suspend agreements by invoking Force Majeure with all IPPs, will fail and damage investor confidence. Targeted approach is required.
Policy Options for Pakistan are multiple. Maintain defensive posture in KSA: Defend Saudi territory, avoid offensive entry into Yemen, keep mediation channel with US and Iran, even with Houties alive as stated. Use legally valid FM on 4 RLNG IPPs to suspend capacity payments for non-supply days, linking to Qatar FM notices.
” Accelerate hardship-based renegotiation for remaining IPPs: convert ROE from dollars to rupees, remove take-or-pay for idle plants, cap capacity charge at Rs3-5 per unit, retire 30-year-old furnace oil plants.
” Protect consumers: Redirect Rs260 billion saved from IPP renegotiation plus Rs193 billion from DISCO loss reduction to reduce tariff, not to cover fiscal deficit, and up grade transmission lines.
” Energy independence: Formalise 19 GW rooftop solar as strategic reserve, invest in storage, reduce RLNG dependence that must transit Bab al-Mandab. Speedy completion of Bhasma dam.
Pakistan’s stance in this scenario cannot be purely military. With circular debt at Rs1.6 trillion, IMF programme, and public trust low, reining in IPPs is not an economic reform, it is the condition for sustaining any foreign policy in the Gulf. We do not know the secret cluses of Mecca agreement .As Pakistan has very high stakes involved in Saudi Arabia Pakistan , should demand compensation.
